Your Right to Know

Ohioans would be in line for a future maximum income-tax cut of about 1 percent, based on the
latest revenue estimates of a bill that seeks to increase severance taxes on shale fracking in
Ohio.

In an analysis that makes it clear the numbers are “very preliminary” and difficult to predict,
the nonpartisan Legislative Service Commission says that by 2019, House Bill 375 could bring in
about $186 million annually. Of that, $120 million would be used for a state income-tax cut.

That is the commission’s high-end scenario. Under its low-end projection, the tax cut by 2019
would reach $39 million — about a 0.33 percent income-tax cut.

Meanwhile, the bill’s income-tax credit for individuals paying the new severance tax would cost
the state general-revenue fund between $9 million and $21 million a year.

The analysis notes that predicting tax revenue is an exercise loaded with uncertainty.

“Complicating the estimates of new producing wells is the fact that so many wells already
drilled are not producing,” the analysis said. “The tax revenue depends on other factors, including
the prices at which petroleum, natural gas and natural-gas liquids can be sold. ”

The commission’s low scenario projects 396 to 445 new shale-fracking wells per year from 2015 to
2018, while its high estimate projects 420 to 629.

The bill would raise $42 million to $108 million more per year by 2019 compared with the current
tax rate, according to the analysis. The bill would replace Ohio’s current volume-based tax — 10
cents per barrel of oil and 2.5 cents per MCF (1,000 cubic feet) of natural gas — with a
gross-receipts tax. The fracking tax would start at 1 percent, then go to 2.25 percent after two
years.

Rep. Jeff McClain, R-Upper Sandusky, the new chairman of the House Ways and Means Committee,
said the numbers seem more reasonable than some of the initial estimates.

Gov. John Kasich has said he wants to use a severance-tax increase as part of his plan to
further cut the state income-tax rate. In addition to tax cuts, the bill would provide up to $16
million in 2019 for local governments where fracking is occurring and $21 million for drilling
regulation, orphan wells and mapping — money that would not fully offset losses to those funds.

Getting the House, the Senate, Kasich and the oil and gas industry to agree has been
difficult.

“We have not reached an accord, but we certainly have moved toward accord,” Speaker William G.
Batchelder said on Monday.

McClain added: “In our caucus, we have people with a lot of different ideas.”